US Stocks Slip As Defensive Sectors Decline

PeterA. McKay

U.S. stocks slipped into the red Thursday as losses in the defensive consumer staples and healthcare sectors outweighed gains in the financial and energy spaces.

Shares of managed-care companies extended their declines as the Obama administration's proposed budget would put in place vast reductions in payments to private insurers through the Medicare Advantage program and would implement a bidding process for insurers. Humana dropped the most, losing 20% in recent trade.

The Dow Jones Industrial Average returned to negative territory, recently dropping about 80 points to 7190. The S&P 500 shed 11 points to 754. The Nasdaq Composite Index was down 2.2% to 1394.

Stocks started the session strong as investors poured into embattled financial names, but much of the euphoria cooled off by midday. Investors cautioned that questions remain about the sagging global economy's ability to mount a recovery in the months ahead, leaving traders quick to lock down their short-term gains.

Strategist Jack Caffrey of J.P. Morgan Private Bank in New York said that "the trading is still choppy. People have itchy fingers and will book profits wherever they can."

The gap between advancing shares and decliners was tightening on the New York Stock Exchange and the Nasdaq. The Chicago Board Options Exchange Volatility Index, a gauge of investors' anxiety, was down about 2.5%, well off its intraday lows.

While market sentiment is far from enthusiastic over recent government efforts to prop up the economy, FTN Equity Capital Markets strategist Tony Dwyer said there were some signs that investors may be opening themselves up to some risk. Namely, safe-haven plays like gold, which bounced above $1,000 an ounce recently as stock gauges sank to new bear-market lows, was lower by roughly $23 an ounce. Also, traditionally defensive plays like consumer-staple and health-care stocks were the weakest sectors in the S&P 500.

Still, financial stocks remained on top of the agenda amid a stream of developments at major lenders around the globe and as the White House sought more funds to assist troubled institutions. The Obama administration's budget request includes $250 billion to stabilize the financial system if necessary.

JPMorgan Chase shares climbed 6% amid the bank's annual shareholder meeting. The bank said Thursday it will eliminate about 12,000 jobs as it integrates the operations of Washington Mutual. Bank of America rose 2.7% on reports that it is looking to sell First Republic Bank, a private bank it inherited in the Merrill Lynch deal.

Regional banks bounced as Fifth Third Bancorp rose 12%, SunTrust Banks surged 19% and Huntington Bankshares rose 17%, though each of the stocks was off from early session highs.

Not all financials were rallying. Shares of student lender SLM, known as Sallie Mae, dropped 38% after the Obama administration said it would end fees paid to banks that provide student loans, a move that would effectively end private-sector student lending.

Traders mostly ignored another round of grim economic reports which seemed only to affirm the market's dismal outlook. Initial jobless claims last week rose to a 26-year high while total claims cracked the five-million mark for the first time. Durable-goods orders dropped 5.2% in January and were down 26.4% in annual terms. New-home sales last month plunged 10.2% to a new record low.

Strategist Bill King, of M. Ramsey King Securities in Burr Ridge, Ill., said the market is due for a short-term bounce that could last through Thursday's close following a dismal performance in the last few days. But he, like other veteran investors, remains skeptical that federal officials have yet found the right mix of policies needed to get major Wall Street firms on stable footing for good.

"They still seem to be grasping at straws," King said. "The administration has just taken office, they're confronted with this serious recession, and it's not getting any better yet."

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